Marathon Healthcare Files For Bankruptcy Protection

LISA CHEDEKELCourant Staff Writer

Under threat of state receivership, the East Hartford-based Marathon Healthcare nursing-home chain has filed for bankruptcy protection, becoming the second Connecticut chain in six months unable to pull itself out of debt.

The bankruptcy filing comes three months after the state Department of Social Services launched an investigation of Marathon's finances because of evidence that the chain was not meeting its payment obligations. In March, the department's audit unit reported that Marathon's debt problems raised "serious doubts" about its ability to continue operating without significant restructuring, but stopped short of calling for the chain to be put into state receivership.

But on Wednesday, after state officials monitoring the chain's finances learned that Marathon had missed a payment to the state Department of Revenue Services, Social Services Commissioner Michael P. Starkowski directed the attorney general's office to pursue state receivership, saying the company's financial condition "is such that the health, safety and welfare of residents is now in jeopardy."

The attorney general's office filed court papers for receivership late Thursday — an action expected to be pre-empted by the bankruptcy filing. Attorney General Richard Blumenthal said the state still would take steps, such as seeking appointment of a health-care ombudsman, to safeguard patient care.

In receivership, a court-appointed receiver would take control of the chain and decide whether to sell or close homes. Bankruptcy allows the chain's owner to retain control and reorganize.

Marathon operates six nursing homes in Connecticut, with more than 700 beds — in New Haven, Torrington, Norwalk, Prospect, Waterbury and West Haven — and one in Springfield.

The company's bankruptcy filing shows that it owes more than $7 million to vendors and otherparties, including more than$1.5 million to Value HealthCare, a pharmacy services supplier;more than $540,000 toConnectiCare; and thousandsof dollars in bills for utilities.

Earle Lerner, Marathon'spresident and CEO, said Fridayhe has every intention of reorganizingand reviving thechain. He said Marathon's financialproblems have not affectedthe quality of care.

"The state's been in here azillion times in the last threemonths, and the care is great,"he said. "We're really proud ofthe work we do and the care wegive. ... We have what we believeis a very strong starting pointto reorganize."

In their March report, state social services auditors said that a chief cause of Marathon'sfinancial problems was that $4.2 million had been"drained" from the Connecticuthomes to cover losses at theSpringfield facility, which Lernersaid he was in the processof selling. The report found noimproprieties in the chain'sfinancial dealings.

State officials were alerted toMarathon's money woes whenthe company requested a $1million advance on Medicaidpayments in January to meetpayroll obligations, and whenthey learned that several vendorshad not been paid formonths. The social servicesdepartment granted Marathonan $800,000 advance at the time.

Marathon's bankruptcy petitioncomes less than fivemonths after Haven Healthcare,one of the state's largestchains, filed for bankruptcy inthe wake of reports in TheCourant detailing patient-careand financial problems. Federalauthorities are investigatingHaven for possible misuseof Medicaid and Medicarefunds. The chain's owner divertedcorporate assets to acountry-music company andother personal assets.

The Haven chain is expectedto go on the auction blockwithin the next several weeksin a sale that the bankruptcycourt is overseeing.

Marathon's slide into bankruptcymarks a sharp changein the chain's status. Marathonwas founded in 2004, when itacquired four homes that werein deep financial trouble. In2006, Marathon was praised bystate officials for stepping in topurchase a 150-bed Waterburynursing home facing closure."We've taken hugely troubledhomes and turned them intohigh-quality homes," said Lerner,who is vice president of theConnecticut Association ofHealth Care Facilities.

In a report to state officialslast month, Lerner said thechain was awaiting $2.6 millionin pending Medicaid reimbursementsand that it hadstopped the losses at its Springfieldhome. The dual bankruptciesof Haven and Marathonaffect more than 2,500 of Connecticut's28,000 licensed nursing-home beds. Lawmakers areconsidering several proposalsthat would increase staffingand financial oversight of nursinghomes.

Senate President Pro TemDonald E. Williams Jr., DBrooklyn,said Marathon'stroubles point up the need forgreater oversight of nursinghomes, many of them owned bychains with multistate holdingsthat could be drainingcash away from Connecticut.He said that strengthening thestate's staffing standardswould be a way to ensure thatchains direct funding to theirConnecticut homes.

Deborah Chernoff, a spokeswomanfor the New EnglandHealth Care Employees Union,District 1199, which representsworkers at the six Marathonhomes, said the union wouldwork with management to ensure"continuity and stability"for residents and their families.